"Do you want to eat well or sleep well?"
That's the first thing a former IRS agent turned pubic accountant asked us when we approached him about doing our company taxes.
Over the years, we learned he could do both: He helped us save money and we worried less about an IRS audit.
Are you worried about an audit? If you're the sole proprietor of a small business, you'd better be. You're a prime a target for IRS audit. If you run a company that uses contract labor, you should be worried, too. The IRS just hired 100 new auditors to check up on you.
Regardless what your company does or the size of your firm, an audit can be an intimidating and expensive experience — even if you did everything correctly and honestly.
A small business financing consultant and former banker I know intimately (literally — I married her) endured a line-item audit. For a consultant, time is money, but for days her time was tied up preparing for the audit and then defending every expense and every deduction. In the end, the exasperated auditor admitted the IRS actually owed her money. It was a small triumph, but it didn't make her any happier or come close to paying for the time she'd lost.
In these tough economic times, adding extra cost may not seem like a good idea. But take a hint from my wife. As a financial expert, she knew it was a good idea to have a Certified Pubic Accountant (CPA) prepare her taxes. That extra level of expertise was worth the cost to her, and it can be for you too.
The problem, of course, is how to find a good accountant. Some will work alone on your dining room table, and some are part of huge multinational operations with thousands of accountants and dozens of specialized divisions. How do you decide?
Before you go CPA-shopping, decide what you really need most and try not to force a square peg into a round hole. Do you want tax planning and financial advice? Do you need someone who can help you with employee compensation and benefit issues? Are you looking for personal retirement and investment planning? Do you just want your taxes prepared at calendar year-end or fiscal year-end? In any case, keep in mind that it's very hard to find a CPA who can "do it all."
The best way to find a good accountant is to talk to other business owners about who they use. People tend to have strong opinions about their advisers, and are eager to refer a good one. Once you decide what you want and what you need (those aren't necessarily the same thing when it comes to cost), interview potential accountants to be sure they can handle those issues that are most important to you.
Ask for references — then talk to them. Ask if they're happy with the level of advice, contact and attention they get from their accountant. It's one thing for an accountant to tell you what he or she can do for you; it's another for their clients to tell you what the accountants actually do.
One way to make sure your financial house is in order, given the complexity of our tax laws, is to find an individual or firm with experience in your industry or, at the very least, the type of industry you're in (such as manufacturing, service, software, retail). And size does matter. A firm equipped to handle issues associated with a big company may not understand the realities of running a sole proprietorship, for example.
If your business grosses less than about a million dollars a year, your needs can probably be met best by a small firm where you can have a personal relationship with an individual. They don't need to work in your home, of course, but they should be nearby. If your business is larger, you may need a firm that can offer a range of specialized advice on issues such as employee compensation and benefits, or pension plans.
Not all accountants and accounting firms are created equal. A CPA will cost you more than a bookkeeper, but they're better qualified to do your taxes. CPAs must pass a rigorous exam and are required to complete continuing education every year to stay current. And while someone who doesn't have a CPA designation may be qualified, the IRS, your banker, and others will place more confidence in a CPA's work. You may also want to see if your prospective CPA is a member of the American Institute of Certified Public Accountants (AICPA) because of the institute's membership standards.
In any case, be sure you meet the person who'll be handling your account, not just the individual who "sells" you on the firm. If you decide on a medium or larger firm, a junior accountant will likely do the actual work on your account. Satisfy yourself that they will be properly supervised so you'll get the 'big firm' advice you're paying for.
You really don't want to buy accounting advice, or any other professional service, from the lowest bidder. But rates and fees do vary, so shop around. Fees for accounting services vary based on the size of the firm, the experience of the accountant, and the area of the country in which the firm is located. Rates can range from $35 to over $300 per hour. An uncomplicated small business tax return can cost between $200 and $1,500. One way to find out what to expect is to take your prior year return to the prospective accountant so they can give you an idea of what they would charge to do it.
Finally, be sure you're comfortable with the individual you choose. While you shouldn't choose an accountant (or doctor or lawyer) simply because you like them, you don't have to settle for someone you don't like.
If you spend a few dollars for professional accounting help, you'll find you can eat better and sleep better, too.
Tom Harnish is a serial entrepreneur. Always on the bleeding edge of technology, he learned what works (and what doesn't) when raising money by spending countless (and often fruitless) hours in front of lenders and investors.